Social Mood Conference  |  Socionomics Foundation

By C.W. Smith | October 17, 2012

As the Presidential election draws near, the Social Science Research Network (SSRN) reports that the study, “Social Mood, Market Performance and U.S. Presidential Elections” has earned the #3 spot among the most-downloaded papers in the past 12 months.

The SSRN eLibrary is one of the world’s leading social science resources, and includes 430,000 paper abstracts from 200,000 authors.  It has delivered close to 56 million downloads, and last year it received over 66,000 new submissions.

Among those submissions:  the elections paper written by a team from the Socionomics Institute.

Authored by Robert R. Prechter, Jr., Deepak Goel, the late Wayne D. Parker and Matthew Lampert, the study amounted to a bold challenge to age-old conventional wisdom regarding what factors predict presidential re-election outcomes.

“We demonstrated a counter-intuitive point about what matters, what doesn’t and why,” Prechter said.

Historians and political scientists have long argued that gross domestic product (GDP), unemployment and inflation have great bearing on presidential elections.  So Prechter tested those ideas.  They studied every presidential re-election campaign dating back to George Washington’s in 1792.  And what they found was amazing.

“GDP was a significant predictor in some of the simple models,” said Deepak Goel, “but it was rendered insignificant when we combined it with the stock market in multiple regression analyses.  Inflation and unemployment had no predictive value in any of our tests.”

So what does matter?

The stock market.  Specifically, they found that stock prices for the three years prior to Election Day greatly influence elections.  But the twist came when they examined the question of whether or not money made or lost in the market had any effect.

“We contrasted eras when stocks were widely owned vs. hardly owned, and there was no difference in results,” Robert Prechter said.

They ruled out GDP, unemployment, inflation and money made or lost in the market as factors.  That left only one.  Matt Lampert explained:

“The best explanation is that the trend of social mood is important in driving the valuations of both stocks and presidents.”

The only question left is:  why did the election turn out the way it did?

Read the paper to find out!